Piketty’s Class-Warfare Tome: Bad Numbers, Bad Analysis

Why do statists make so many mistakes with data? Paul Krugman, for instance, has butchered numbers when writing about fiscal policy in nations such as France, Estonia, Germany, and the United Kingdom.

But Krugman isn’t alone. We also have Thomas Piketty, who was lionized by the left after publication of Capital in the Twenty-First Century.

Ever since his book was published, various experts have called into question the veracity of Piketty’s numbers. Most recently, here’s some of what Alan Reynolds, my colleague at the Cato Institute, wrote about his data for the Wall Street Journal.

Thomas Piketty…remains a hero on the left, but the honeymoon may be drawing to a sour close as evidence mounts that his numbers don’t add up. …data are so misleading as to be worthless. They attempt to estimate top U.S. wealth shares on the basis of that portion of capital income reported on individual income tax returns—interest, dividends, rent and capital gains. This won’t work because federal tax laws in 1981, 1986, 1997 and 2003 momentously changed (1) the rules about which sorts of capital income have to be reported, (2) the tax incentives to report business income on individual rather than corporate tax forms, and (3) the tax incentives for high-income taxpayers to respond to lower tax rates on capital gains and dividends by realizing more capital gains and holding more dividend-paying stocks.

Alan lists some of specific problems that exist when you try to make sweeping assertions based on tax return data.

For example, interest income from tax-exempt municipal bonds was unreported before 1987—so the subsequent reporting of income created an illusory increase in top incomes and wealth. Since 1997, by contrast, most capital gains on home sales have disappeared from the tax returns of middle-income couples, thanks to a $500,000 tax exemption. …since the mid-1980s, most capital income and capital gains of middle-income savers began to vanish from tax returns by migrating into IRAs, 401(k)s and other retirement and college savings plans. Balances in private retirement plans rose to $12.4 trillion in 2012 from $875 billion in 1984. …When individual tax rates dropped from 70% in 1980 to 28% in 1988, this provoked a massive shift: from retaining private business income inside C-corporations to letting earnings pass through to the owners’ individual tax returns via partnerships, LLCs and Subchapter S corporations. …Although more frequent asset sales showed up as an increase in capital income, realized gains are no more valuable than unrealized gains so realization of gains tells us almost nothing about wealth. Similarly, a portfolio shift from municipal bonds, coins or cash into dividend-paying stocks after the tax on dividends fell to 15% in 2003 might look like more capital income when it was merely swapping an untaxed asset for a taxable one.

So what’s the bottom line?

Mr. Piketty’s premonition of soaring U.S. wealth shares for the top 1% finds no credible support in his book or elsewhere.

But let’s now conduct a thought experiment. What if Piketty’s data was right? Would that justify punitive class-warfare tax rates?

Meltzer and Richard show that using redistribution to ameliorate income inequality is not only ineffective, but worsens the problem that policy makers seek to cure. …Since workers’ productivity levels increase with the more they produce, and because higher taxes create disincentives to working, taxes lead to lower economic growth. …Higher tax rates that fund transfer payments hamper economic growth. That’s because they increase the number of people who depend on these payments and find it preferable not to work. There also is less learning-by-doing among those who work. …As taxes and transfers rise, hours of work and acquired skills decline, reducing economic growth. …it is this decline in hours worked for low-productivity workers that leads to more economic inequality — not the growth of technology nor the rent-seeking privileges of the rich, two causes cited by Piketty. Reduced effort by the rich in reaction to higher taxes comes at the expense of economic growth, which has the potential to raise everyone’s living standards and increase economic opportunity. …Meltzer and Richard show that the growth of government is the true driver behind inequality.

MADE IN USA Buy only those with that label. Apple, Nike, Hanes Brands make things only in China. We lost 2.7 million jobs since 2001. 77% were in manufacturing. Some economists say it was due to productivity increases. Baloney! Cheap Labor and nothing else. I was looking at a $149 padded seat dinette set in Wal-Mart and a man said âit would cost me $500 to make that. It is simple. $1 versus $10 labor costsâ. A study revealed that 80% of non-produce goods in Wal-Mart came from overseas. 51,00 plants were closed since 2001.Check the label when you buy and it must say MADE IN USA. Clarence Swinney

Clarence, Assume you had a choice between two grocery stores, one nearby owned by John, someone you know, and another a little further away owned by Yuri whose prices were 10% lower than John’s. If you spend $500 per month on groceries, how long would you continue to make your $50 per month charitable contribution to John? Also, when you do make the switch to Yuri’s grocery, does that $50 you are no longer donating to John simply disappear from the face of the earth? Of course not. You now can spend that $50 on something else, or maybe invest it somewhere. You are always better off by paying less for the same thing. So are businesses. So are countries. When we acquire goods from China and elsewhere, we are exchanging small little 6-inch pictures of Benjamin Franklin printed on a thin piece of paper for actual products. The Franklin pictures we saved we can use for other things.
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I understand the inclination to “protect jobs”, but that really isn’t the way to do it.

I have a Chinese-made coffee maker… it cost $9.00 and change… at Wal-Mart… if it had been manufactured in the U.S. it would cost around $40.00… in a union shop… $80… if the government had manufactured it… the cost would likely be in the hundreds of dollars…
and if an American defense contractor had manufactured the same coffee maker it’s cost would likely be in the thousands…. with a good part of that money being kicked back to democrat and republican political campaigns…

American manufacturing is moving overseas because of regulation… taxes… high labor costs and the loss of economic freedom… in order to compete in the world market-place the move is necessary… it’s either re-locate or parish… couple government meddling with robotics and improved manufacturing techniques… and the manufacturing job outlook here is not good… thanks largely to bad policy… over time we will become a nation of part-time burger flippers and desk clerks… not capable of maintaining our traditional role in world affairs…

Ed Darrell from July 2014 claimed that Obama hasn’t raised any taxes. Obamacare is a Tax law, even though it wasn’t written as one and was described by Obama and Congressional bill-writers as penalty fee money raising, not tax raising. Still, SCOTUS said it was, and Obama took the John Roberts re-write and used it, so it is. So, Ed, there you are. Lots of Obamacare taxes for you and me, Ed. I paid $63 dollars on my annual taxes a couple of years ago, even though I was pre-insured, because the preparer said it was a taxpayer-wide fee to pay for the bill. So, Ed: Now you know.

anyone who believes that the defense/national security industry does not factor generous political campaign contributions into their pricing structure… probably believes president Obama keeps a unicorn in the white house stable… fairy dust in the oval office… and Michelle plants magic beans in her garden… more lefty urban legend… and alas…………………..not reality based………..

[…] surprised by some of the economists who signed the letter. Thomas Piketty was on the list, which is hardly a surprise. Along with Jeffrey Sachs, who also has a track record of favoring more statism. Another […]

[…] by some of the economists who signed the letter. Thomas Piketty was on the list, which is hardly a surprise. Along with Jeffrey Sachs, who also has a track record of favoring more statism. Another […]

[…] surprised by some of the economists who signed the letter. Thomas Piketty was on the list, which is hardly a surprise. Along with Jeffrey Sachs, who also has a track record of favoring more statism. Another […]